AFRICA-DEBT-Kenya and Nigeria debt yields seen down next week

NAIROBI Fri Nov 23, 2012 7:39am EST

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NAIROBI Nov 23 (Reuters) - Yields on Kenyan Treasury bills are seen falling further at next week's auction, with a surge in liquidity driving demand up.

Similarly, the yields on Nigerian debt will be put under downward pressure by rising demand from overseas investors.

KENYA

Kenyan Treasury bills' yields are expected to fall further at auction next week on the back of higher demand following a jump in liquidity that has undermined money market returns.

The central bank plans to sell a total of 14 billion shillings ($163.3 million) of 91-day, 182-day and 364-day Treasury bills next week.

"The central bank has been offering lower rates on the Term Auction Deposits (TAD) that's why we are seeing a lot of subscriptions on the short-term debt by banks," said Ignatius Chicha, head of markets at CitiBank.

The weighted average rate on the 7-day repurchase agreement (repo) stood at 7.6 percent on Thursday, down from a high of 10.2 percent on Oct 2.

On the other hand, the yield on the benchmark 91-day Treasury bills stands at 8.987 percent, having started to drop in the middle of this month.

During this week's auction, the yield on the six-month debt fell to 9.773 percent on from 10.325 percent previously, while a 20-year bond also on sale fell to 13.540 percent from 14.822 percent at a similar sale in June 2011, amid massive demand.

The central bank receiving bids worth 38.4 billion shillings for the 20 billion shillings worth of debt it offered. It accepted bids worth 19.4 billion shillings.

Crispus Otieno, a trader at Afrika Investment Bank, attributed the drop in yields to the central bank's monetary policy easing stance.

Policymakers have cut the central bank's lending rate by a total of 700 basis points since July to 11 percent with a view to boosting lending and spurring economic growth.

NIGERIA

Increased offshore investors' interest in Nigerian debt is expected to further push yields down in the secondary market next week.

Yields fell at the two auctions held this week for Treasury bills and bonds, weighed on by strong demand from offshore investors and the trend is expected to continue, traders said.

The inclusion of Nigerian debt on the JP Morgan government index and the planned inclusion in Barclays Bank index drove up interest in the bonds among overseas investors.

The yield on the 5-year bond traded at 12.8 percent on Friday, higher than last week's 12.65 percent, while the 7-year bond traded at 12.6 percent, down from 12.85 percent. The 10-year paper traded with a yield of 12.26 percent, up from 12.68 percent last Friday.

Nigeria sold 50 billion naira ($317.06 million) worth of 7-year and 10-year bonds at an auction on Wednesday, with yields falling more than 100 basis points on both and 116.17 billion naira in Treasury bills with maturity ranging from three months to one year at yields lower than at the previous sale. [ID: nL5E8MM4CI] [ID: nL5E8MM8W5]

($1 = 85.7500 Kenyan shillings) (Reporting by Kevin Mwanza and Oludare Mayowa; Editing by Duncan Miriri)

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